Gold May Be Falling, But Sentiment’s Still Rising

By Brendan Conway

That’s the argument by precious-metals strategists Edel Tully and Joni Teves of UBS, who see encouragement in the way the price of gold has fallen of late. In a word, gradually.

The deliberate move lower has not felt very dramatic, but that’s not to say gold hasn’t already moved considerably. Since the peak two weeks ago, gold prices have now lost around $100 or over 7%. This is likely part of the reason buying interest is starting to emerge. …

Bloomberg News

The aggressive and persistent increase in gold speculative length over the last two months made the market increasingly vulnerable for a washout. The hawkish tilt from the FOMC combined with easing safe haven demand gave longs enough reason to cut back positions. Interestingly though, the correction has been relatively orderly and interest to buy the dip is evident. This reflects the underlying improvement in sentiment towards gold – investors are acknowledging the value of holding gold to diversify portfolios and insure against tail risks and are therefore looking for opportunities to get in at better levels.

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MARCH 31, 2014 4:52 P.M.

The Analyst wrote:

Today (31 March 2014), Big Y, the new Fed Chair made an emphatic speech in for continuing massive QE as follows: “……. the U.S. economy remains "considerably short" of the Fed's goals of maximum sustainable employment and stable inflation at 2 percent … ….. this extraordinary commitment is still needed and will be for some time, and I believe that view is widely shared by my fellow policy-makers at the Fed….”. This is a real attempt to walk back from the “six month” fumble at the last press conference. So short term rates will hold to near zero for at least several years (per latest Fed statement). Long term rates, by necessity, will be capped at 3 – 4% (capped by the requirement to service the national debt….. any higher than that would be unsustainable when looked at from a 17 T perspective…). It is quite obvious that inflation will be used to assist paying down the national debt.

Time to back up the truck (or at the very least actively accumulate) gold mining shares. After a start of year run up, gold mining shares are dipping. This could be the last opportunity to max out on exposure to gold mining shares. The perfect alignment of fundamental, technical, political and sentiment for a bullish case in gold mining shares are still in effect and are beginning to gel.

Major gold miners’ cost reduction implementation started last year is producing results, the reduction of gold production (by both major and minor operators) is becoming a reality leading to a shortage of supply.

In the mean time, the Asian demand for gold continues to pick up big time and unabated. Even Russia has started to accumulate gold during 1Q 2014.

Double bottom for gold prices set in late 2013 are still holding and showing no signs of being violated…. all with higher highs and higher lows.

Sentiment wise, increasing number of major players are tip toeing back into the gold market and this trend is snowballing with the general stock market in a continual malaise while staring at a major correction or bear market turn this year.

With the emergence of recovery in Europe and the continuation of US recovery, inflation, while it has been lagging, will start kicking in around 2Q (may be around June 2014).

The Iran nuclear negotiation is coming to a head. With Russia at odds with the west and being sanctioned, Russia, while a party to the negotiation, will no longer feel obligated to align with the West and will increasing tilting toward Iran. As a result, Iran will feel emboldened not to compromise. This will be the political flash point (around April – May time frame) that acts as a catalyst for the next leg up for the gold mining shares.

So, this dip is the “golden” (no pun intended) and probably the last opportunity to get in the ground floor on the next leg up to make some serious money.
So, back up the truck on major gold miners and increase exposure big time. You will not only protect against erosion of the equity profit but also stand ready for another big run up of the major gold miner shares.

MARCH 31, 2014 9:24 P.M.

What is the real usage of Gold wrote:

Actually, if there's nearly no any industry usage for gold at all. And gold is not currency anymore for many years. The only reason people still buy gold is the old concept that gold is money. But it's not. When the war really comes, OIL, ICON, COPPER, FOOD, WATER is more useful. Gold is only for decoration purpose.

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Chris Dieterich has covered the U.S. stock market for The Wall Street Journal and Dow Jones Newswires. He is a graduate of Regis University and the Missouri School of Journalism.